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Nikkei Markets

Hong Kong leads Asian losses amid reduced Fed rate cut bets

Local property developers decline amid rising political unrest

HONG KONG (Nikkei Markets) -- Hong Kong shares led losses in the region on Monday, as expectations for a smaller rate cut by the U.S. Federal Reserve and ongoing protests in the city weighed on sentiment.

The Hang Seng Index declined 1.4% to 28,371.26 after rising 1.1% on Friday. Insurer AIA Group and technology heavyweight Tencent Holdings fell 1.5% and 1.2%, respectively, and were among the biggest contributors to losses for the gauge by points.

The Nikkei Asia300 Index was down 0.6%. Declines in the region came after U.S. equities fell on Friday amid uncertainty over the quantum of the Fed's widely expected rate cut. Wagers on a 50-basis-point cut had risen after New York Federal Reserve President John Williams during a speech on Thursday stressed the importance of acting "quickly to lower rates at the first sign of economic distress." Later, a New York Fed representative said the speech was academic in nature and "not about potential policy actions," according to Reuters.

The Fed is likely to only deliver a 25-basis-point reduction in July because a 50-basis-point cut "could trigger panic," said Daniel So, a strategist at CMB International, adding that a retreat after Friday's gains on the Hang Seng Index is "normal."

The probability that the Fed will lower interest rates by 50 basis points this month is currently at about 22.5%, according to CME's FedWatch Tool, down from about 44% on Friday in Asia. The data indicates 100% probability of a rate cut at the meeting on July 30 and 31.

"The local clashes over the weekend are having an impact on market sentiment as well," CMB's So said.

Anti-government protesters took to the streets once again in Hong Kong as they continue to demand the complete withdrawal of a controversial extradition bill. Hong Kong Chief Executive Carrie Lam in June announced the suspension of the bill, and earlier this month reiterated that the bill was "dead." Opponents of the bill are also demanding Lam's resignation.

The demonstrations on Sunday turned violent as local police reportedly fired tear gas canisters at protesters, while a large group of men in white shirts later on used sticks to attack people that they believed were returning from protests.

Property developers in Hong Kong were among the big losers on Monday amid rising political unrest, with Sun Hung Kai Properties and New World Development slipping 2.6% and 2.4%, respectively. Wharf Real Estate Investment Company declined 3.2%.

In the mainland, the Shanghai Composite Index slid 1.3%. Meanwhile, some of the 25 stocks debuting on Shanghai's newly launched technology board called the Star Market more than tripled. Among big gainers on the board, Anji Microelectronics Technology (Shanghai) soared 400%, while Shanghai MicroPort Endovascular MedTech surged 242%.

Local stock exchange operator Hong Kong Exchanges & Clearing declined 2.5%. While the new technology board could add pressure on Hong Kong as a destination for new listing, it is unlikely to dilute the city's long-term appear among Chinese companies seeking global investors, according to market participants and observers.

Hong Kong still has "much competitiveness" to offer in the long-term, according to Ringo Choi, the IPO leader for Asia-Pacific region at consultancy firm EY.

Great Wall Motor fell 1.8% in Hong Kong after the Chinese carmaker said it expects profit for the first half of the year to have fallen 58.6% from a year ago, and trimmed its 2019 sales volume target to 1.07 million units from 1.2 million units. Jefferies, Credit Suisse and Bocom International cut their price targets on the stock after the announcement.

Electric carmaker BYD added 0.6% after saying it signed a cooperation agreement with Japanese auto giant Toyota Motor to jointly develop battery-driven electric sedans and sport-utility vehicles in China.

Television marketing services company Sinomedia Holding tumbled 14.7% after saying it expects to report a net loss for the six months ended June 30, compared with a profit a year ago.

--Amy Lam

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